With responsible and ethical lending at the forefront of proposed regulation changes for the UK BNPL (Buy Now, Pay Later) space, we look at how DivideBuy is already delivering market-leading ethical lending practices and how UK consumers and retail partners are benefiting from this.
– The UK BNPL (Buy Now, Pay Later) industry, worth around £10bn, is currently unregulated, but the Government has proposed new industry rules that could become law in 2024
– It will mean lenders must have protections in place for borrowers to help avoid financial difficulty as a result of the credit agreement
– Ethical lending is a customer-centric approach to offering credit, which is more important than ever during the current cost of living crisis
– Ethical interest free POS credit such as that offered by DivideBuy can be a tool for customers to help with budgeting and managing their finances
– LendTech has some potential pitfalls but, when utilised responsibly and implemented ethically, it can offer a range of benefits for consumers and merchants
Forthcoming regulation for Buy Now, Pay Later lenders
It has recently been announced that the UK BNPL (Buy Now, Pay Later) industry, worth an estimated £10bn, is set to be subject to new regulatory requirements that include approval being gained by the Financial Conduct Authority (FCA), affordability checks being done on customers, and adverts being deemed fair and clear. While not expected to become law until 2024, the proposed measures are focused on helping ensure that BNPL lenders are responsible and fair in the ways that they deal with customers.
What is ethical lending and why is it important?
Ethical lending is a term used to describe lenders who take their responsibility to borrowers very seriously, put the customer first and take steps to ensure fair treatment. Taking measures beyond the minimum requirements, an ethical lender actively strives to ensure customers have a full understanding of what they are signing up for and takes their wellbeing into account when making lending decisions.
Ethical lending is so important because it helps to avoid situations like people taking on unsuitable debt that they cannot repay without putting themselves into difficulty. It also offers an accessible solution to consumers who want to spread the cost of a purchase over several instalments and can even assist with budgeting and money management.
Ethical lending during the cost-of-living crisis
With the current cost of living crisis, many people are having to be more careful with their money than ever before, with household budgets stretched by increasing energy, fuel and food prices as inflation continues to rise. Borrowing money is never something that should be taken lightly, and ethical lending aims to ensure that customers understand fully what they are applying for and will simply not lend if they don’t believe it is in the interests of the borrower.
Taking steps to help ensure that the customer comes first is at the heart of ethical lending, and this can be outworked during the current crunch through encouraging only sensible and sustainable borrowing at a level that the customer can afford without putting themselves in financial difficulty. Regular small repayments can often be more easily incorporated into budgeting plans than larger one-off purchases, which many customers might find easier to manage.
Myths and preconceptions about POS financing
POS financing through interest free lendtech solutions like DivideBuy is growing in popularity with both retailers and shoppers. However, it’s a form of credit that can split opinion somewhat. Some believe that this type of finance promotes reckless spending from younger generation and results in unmanageable debt. However, with ethical and responsible lending, this is far from the case. When borrowing decisions are made ethically, with a customer-centric approach, this type of POS financing instead becomes a useful tool that offers flexibility to consumers of all types and ages.
Why shoppers want to buy with interest free credit
It’s not rocket science as to why consumers look for interest free products and services using BNPL. Those used to traditional credit cards, loans and traditional finance agreements are used to paying significant interest on their initial borrowing, so interest free credit is immediately a more attractive option for many, especially in the current financial climate. The fact that this type of credit is available on a wide range of products and services gives shoppers more choice in how they pay for lots of different things, which might not have been readily available to pay off in instalments in years gone by.
Why retailers like being able to offer interest free credit
Retailers see value in offering interest free deals because they can offer more flexible ways for their customers to pay without having to wait for all the repayments to be made before getting the revenue through their door. The credit risk is taken on by the lender, not the retailer, which also makes it more attractive for eCommerce brands.
Most retailers that choose to partner with ethical lendtech companies like DivideBuy, to offer interest free POS financing, soon discover that it has a huge impact on conversions, reducing cart abandonment and driving more revenue. You can view our retailer success stories here.
DivideBuy: Ethical lendtech in practice
One of the key benefits of BNPL in an eCommerce setting is convenience, with an application for interest free credit being quick and straightforward as part of the online shopping checkout process. However, that doesn’t mean there needs to be a compromise on doing the necessary checks and ensuring that the customer has everything they need to make an informed choice about how to pay for the goods or services.
DivideBuy has a rigorous credit approval process. This doesn’t mean that we turn people down automatically if they don’t have a perfect credit history. It means that we take several factors into account when making lending decisions to arrive at an outcome we believe is fair and responsible.
Our credit decisions are quick, but not instant. We want customers to think about what they are borrowing and why; and understand fully how and when they will need to make repayments, before they commit to buying something online via DivideBuy. This is an important part of ethical lending.
We also offer an Eligibility Checker tool so that shoppers can see if they are likely to be accepted to borrow from us before they commit to a ‘hard’ credit check. A soft check can’t be seen on the customer’s credit file by other lenders, so won’t have a negative impact on their credit rating even if they are not accepted to borrow on this occasion.
The future of ethical lending in the UK
At DivideBuy, we welcome the forthcoming regulation of the BNPL industry and any measures that help to protect consumers and retailers. Consumer credit agreements should be clear and easy to understand, lenders should be transparent in how they operate and shoppers should always know what they are signing up for and the amount of money they need to repay, and when.
DivideBuy’s CEO, Robert Flowers, says:
“DivideBuy has one goal – to make fair, ethical, affordable and fee-free lending accessible to consumers at all income levels. We have always put the consumer at the heart of our business and pride ourselves on being able to help consumers make informed purchasing decisions thanks to having no late fees, instalment repayments over longer periods, deposit weightings and payment holidays.”
As one of the leading UK lendtech companies, we believe that it’s our responsibility to ensure that our ethos of ethical and accessible lending runs through everything we do, which includes our business model. Unlike many other POS financing firms, we don’t charge late fees for customers, and we make no money from their data. We simply charge merchants fees for the service we provide.
Our credit application decisions are based not only on the customer’s credit history, but also their current circumstances and affordability information. This is how we can make customer-first decisions and offer them access to flexible finance that can help them manage their budget more effectively. In short, we are committed to offering fair and ethical lending services to both consumers and retailers.
Find out more about how to partner with us as a retailer.